Harnessing transaction data

By building its technology from scratch, Boden says Starling will offer more personalised services using modern analytics techniques. This means making use of the detailed information generated with each transaction.

“When I started building systems in 1981 and 1982 we could only keep the information online for 30 days - the storage was very expensive. What if we could collate all the transaction data with all the contextual data about where the transaction was made and the circumstances? Then we could use natural language to enquire from it.

“And what if we had analytics to deduce and have insights and actions on that particular information? We are building that now.”

Boden is tight-lipped on the exact technologies the bank will use, though it involve a combination of ‘off the shelf’ software and in-house developed systems. Open source technologies such as Hadoop will form the basis of its analytics platform, and public cloud services will be considered for certain purposes.

“We will be using the cloud for some of the unstructured data,” she says. “We cannot use the cloud for banking data, because the regulator doesn’t allow you. But we can use cloud technologies for coming up with scalable solutions.”

Boden says the agility afforded by modern technology offers an advantage over the established lenders. While many banks spend vast sums on IT, much of this is on maintaining ageing systems, rather than supporting innovation.

And with a number of new banks aiming to enter the market following the relaxation of rules by UK regulators in 2013 -– such as Atom and Mondo - this has the potential to disrupt the incumbents.  

Boden believes it will difficult to for the large banks to keep pace with the pace of technological innovation.

“I think that 50 percent of the existing banks will not be around in five ten years time.  Some will reinvent themselves and some will fall by the wayside,” she says.

“Whatever happens, the bar will raise. When you get new entrants and people doing interesting things, the standard raises for everybody.”

Pace of innovation

Boden is also sceptical about the potential for established players to create their own separate banks to head off this threat, with the incorporate culture likely to stifle significant changes.

“In order to create a new startup bank you have to cannibalise your own business,” she says. “You have to be brave and admit that you can’t do it yourself. It takes quite a lot for a board to get together and decide they can’t do it [within its traditional operations], and they have to set up something separate. It is a psychological and a cultural issue.

“You then have to let it make all the mistakes of a new bank. So what would happen is that someone would say 'we don’t want you using your own HR system, we want you to use ours, we don’t want you to sue your own general ledger we want you to use ours'. Or 'we have a really good deal with Oracle, can you use Oracle rather than something open source?'

“And you can imagine what will happen. You have layer upon layer of compromise until you have an organisation that is dependent on the [parent bank].”

Investment plans

For Starling, the next are to find more funding to continue development of its services. It has already secured funding from high net worth individuals, Boden says, and is now seeking £10 million through institutional investors.

Ahead of its proposed launch, Starling aims for a further £20 million to build its capital and continue systems development.

“The investment has to go to the technology build and for regulator capital. But the vast majority of the spend is going into technology. That is good – we are a technology company with a banking licence.

See here for more information on the digital banks taking on the big financial firms. And here for Techworld's interview with Mondo bank CEO Tom Blomfield

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